Study On Incentive Mechanism To The Franchisee In The Franchising Contract

Franchise has occupied more and more important status in our country. So far, the researches on franchise mainly concentrate on the reason of its existence and the supervision.But this article revealed that the franchisor should strengthen on the incentive to the franchisee and make his behavior along to the franchisor's expectation goal, and then bilateral are win-win situation. Because the information is asymmetrical and the branch store is scattered, the franchise contract is non-completeness, it has many limitations, such as free-ride problem-the supervision sometimes is difficult, and the franchisee usually makes a false report on the sales revenue, and reduces the quality investment. So it is necessary to design an incentive contract.How to design the incentive contract is the core part in the article. Firstly, the franchiser deduces the possibility of the franchisee's acts basing on the revenue of branch, and then decides to reward or punish. However, the franchiser should relate to the condition of branch such as opponent, consumption convention, consumer' income, economic level when they reward or punish, so the reward and punishment will be more reasonably. Secondly, the behavior of the franchisor and the franchisee isn't confirmed, it's necessary to introduce the law mechanism to the incentive contract, and so if Both Parties are Honest, it's Nash Equilibrium.Basing on the conclusion and Chinese franchise situation, I put forward some proposals: incentive is first, the supervision is second, and establish the motivation system; competing motivation system among the franchisee; control out of the motivation system and setting up the special law of franchise.It's an innovation that this article cites the Principal-Agent model to design an incentive contract to solve the franchisee's opportunism which makes franchisers' and other franchisees' benefits will not be lost. But the limitation of this article is that the possibility of franchisees' behavior is not determined easily.